Is London 2012 an Economic Flop?

Ahhh, the great Olympics… The ultimate dream and the pinnacle of sport. Any nation who has the privilege of hosting it is believed to receive a huge economic boost. Unfortunately for the U.K., this doesn’t seem to be the case… at least not yet.

Before the games began, the U.K. had expected London 2012 to draw in huge crowds and cause tourism to spike. So far, initial estimates say that the Olympics have brought in more than 100,000 foreign visitors. This may seem like a big number but it’s actually just a third of what London gets every summer.

Apparently, London is suffering from what is called the “displacement effect.” Instead of participating in the festivities, locals are choosing to just work from home and not go out.

In some cases, locals have even decided to move away temporarily to spend their summer vacations elsewhere. Meanwhile, many foreign tourists (who usually make it rain dough in the summer) have avoided the city on warnings of heavy traffic from the government. Basically, people are staying away because they’re expecting large crowds and congestion. Ironic, huh?

On the other hand, neighboring European capitals seem to be on the receiving end of the equation as they’ve been reporting increases in visitors from those who are avoiding London this summer.

The displacement effect has turned some parts of London into a virtual ghost town. Businesses are suffering as a result, with shops, hotels, museums, and theaters reporting a 35% decline in activity.

Many of you are probably already wondering whether or not hosting the Olympics is even worth all the trouble. After all, hosting the Olympics isn’t cheap!

Initial estimates of organizers projected the cost of hosting the games at $8 billion, but now it looks as though the U.K. may rack up a bill between $17 and 19 billion.

However, tourism’s contribution to the economy is only expected to increase by less than 1% this year, according to the World Travel and Tourism Council. Yep, that’s right, even with the “help” of the games, tourism is barely expected to improve!

So did the U.K. make a mistake in hosting the Olympics? Will it turn out to be an economic flop?

Not quite, if you ask me. You have to remember that although the Olympics are only held over a period of a few weeks, it can have lasting effects on the economy. We can’t just weigh the Olympics based on the games itself.

We have to look at the business it generated in preparation for the games and the additional economic activity it can generate down the line. We’re talking years into the future, son!

According to Lloyds Bank, aside from the billions spent on infrastructure in the years leading to the Olympics, the games may bring in about $1.5 billion worth of additional tourist spending in the 5-year period after the games. Plus, we can’t deny that the U.K. is getting a lot of good global publicity from hosting the Olympics.

Apparently, the UK is already trying to capitalize on this by sealing deals with foreign investors. Just last week, it reported that Neoglory, China‘s largest jewelry and accessories company, aims to open up shop in London. Adding to that, Sega, the Japanese video game powerhouse, announced that it plans to put up a development facility in the U.K.

When it comes to the economic impact of the Olympics, the bottom line is this: it might not provide an immediate boost to the economy (one that the U.K. so desperately needs), but it looks as though it may have a strong positive impact on the economy down the line.

  • Daniel

    im sure hosting the Olympics isnt cheap. it just looks that way… having flags fall off their banners, not hiring enough security guards, forcing the athletes to sleep on beds size up for 6 year olds and downloading the wrong Kazakhstan anthem from the internet sure makes it look cheap.

    • TT

      Was the wrong anthem for Kazakhastan played at london 2012 Olympics? That would be a repeat of what happened in Kuwait shooting championship earlier this year. Would expect the organisers to be that careless…

      • TT

         I meant “not to be that careless”

        • Daniel

          they played the Kazakhstan anthem from the borat soundtrack and the lady getting her medal just laughed 🙂

  • windy 3

    As a Brit (but not a Londoner) I’ve been surprised by how much the games have created a feelgood factor.

    An inspired and confident population, if it lasts for any length of time, will be good economically.

    • Forex Gump

      Glad to hear that! How is it on your end of the U.K.? Any noticeable changes?

      • windy3

        I live 300 miles from London, but even here, everybody is talking about the Olympics, Facebook is full of Olympic comments, and everyone is really happy about the success of Team GB. We Brits love sport, when it comes down to it.

        After years of bad press, it seems the Games has been a huge success in terms of getting the whole country excited, the whole thing is running smoothly, and all the fearmongering hasn’t come to fruition. Sure, it was expensive at a time when the nation has huge debts, I just hope the investment converts into benefits long-term.

  • Graham Wadsworth

    I would just like to add to the comment by Windy 3.  I live in the north of England in Yorkshire and even here, there is definitely a feel good factor, probably helped by the fact that the County of Yorkshire has earned more medals than many countries including Australia and Japan.  The Olympics have maybe helped restore a belief in ourselves, which can only be good going forward.

  • Vasil Ivelinov

    I believe that the point of this olympic game is the crowd and how people are positive as one of the comments below states. However, for the economy it seems that they are loosing, remember that there were strikes for pay rises in relation to the expected visitours… For me this will lead to company spending more because of that displacement effect and the people that are recieveing the money will just keep them or spend them on gambling or alchohol as this is my stereotype of people working at the transport sector for example